RXR WWP
Owner LLC, Plaintiff,
against
WWP Sponsor, LLC, WWP HOLDINGS, LLC,
AMERICAN REALTY CAPITAL PROPERTIES, INC. d/b/a AMERICAN REALTY
CAPITAL, and AMERICAN REALTY CAPITAL NEW YORK RECOVERY REIT,
INC., Defendants.
|
653553/2013
Meister Seelig & Fein LLP, for RXR.
Blank Rome LLP, for WWP.
Morrison Cohen LLP, for ARC
Shirley Werner Kornreich, J.
Motion sequence numbers 002 and 003 are consolidated for disposition.
Defendants American Realty Capital Properties, Inc. and American Realty
Capital New York Recovery REIT, Inc. (collectively, ARC) move, pursuant to CPLR
3211, to dismiss the claims asserted against them in the Amended Complaint (the AC).
Seq. 002. Defendants WWP Sponsor, LLC (WWP) and WWP Holdings, LLC
(Holdings) also move to dismiss the claims asserted against them. Seq. 003. Plaintiff
RXR WWP Owner, LLP (RXR) opposes the motions by ARC and WWP, but conceded
at oral argument that it has no claim against Holdings. See Dkt. 208 (5/8/14 Tr. at
2). The AC, therefore, was dismissed against Holdings. For the reasons that follow,
WWP's motion is granted and ARC's motion is granted in part and denied in part.
Procedural History & Factual Background
As this is a motion to dismiss, the facts recited are taken from the AC.
This action concerns the sale of equity in Holdings, which owns a Manhattan
property known as Worldwide Plaza, located at 825 Eighth Avenue (the Property). AC
¶ 1. In an Amended and Restated Contribution and Admission Agreement dated
May 30, 2013 (the Contract), WWP agreed to sell a 48.9% membership interest in
Holdings to RXR. Id.; see Dkt. 147. The sale price was based on a $1.25
billion property valuation. AC ¶ 19. The Contract provides for the sale of the
remaining Holdings equity, at WWP's option, to RXR based on a $1.35 billion valuation.
¶ 20. RXR provided WWP a $25 million Contract deposit, and the transaction,
originally, was scheduled to close on August 14, 2013. ¶¶ 21, 37.
In July 2013, RXR began negotiated with ARC to procure ARC's joint investment in
its purchase of the Holdings equity under the Contract. ¶ 30. On July 15, 2013,
ARC executed a [*2]letter agreement (the Confidentially
Agreement) in which it agreed to keep confidential certain due diligence materials that
RXR had prepared in connection with the Contract. ¶¶ 31-32; see
Dkt. 150. The Confidentially Agreement provides:
[RXR] will be providing information to [ARC] in connection with the consideration of a
possible transaction involving [the Property] (the "Transaction").
As a condition to the furnishing of the requested information you agree that
(i) all information furnished [to ARC] in connection with your consideration of the
Transaction (such information being referred herein as the "Evaluation Material") will
be kept confidential, and (ii) the Evaluation Material will be used solely for the purpose
of determining the desirability of the Transaction;
This Agreement shall terminate one (1) year after the date of its execution,
or, if earlier, upon a closing of a Transaction, with regards to the Property, between ARC
and RXR.
It is expressly understood that this agreement is not intended to, and does
not, constitute an agreement to consummate the Transaction or to enter into a definitive
agreement, and neither of us will have any rights or obligations of any kind
whatsoever with respect to the Transaction by virtue of this agreement.
Dkt. 150 at 2-3 (emphasis added). After ARC executed the Confidentially
Agreement, RXR provided ARC with the Evaluation Materials. AC ¶ 35. ARC,
however, decided not to invest with RXR. ¶ 36.The closing did not occur on
August 14, 2013 because RXR did not procure the required lender consents under §
7.11 of the Contract. ¶¶ 37-41. To explain, the Property is encumbered by a
complex "stack" of debt. ¶ 39. The senior debt was securitized with a commercial
mortgage backed securities trust. Id. At RXR's insistence, the Contract requires
the master and special servicers to consent to the transaction before closing.[FN1]
RXR did not procure the lender consents before the original closing date, and the parties
agreed to extend the closing date to September 30, 2013. ¶ 41. RXR alleges that, at
some point in August 2013, WWP orally agreed to further extend the closing to October
30, 2013. ¶ 42. The Contract, however, provides that with respect to the closing
date, time is of the essence [§ 9.1(a)], and the Contract may not be modified orally
[§ 12.10].On September 30, 2013, when the lender consents were still not procured
and closing, therefore, could not occur, RXR and WWP agreed in writing to extend the
closing date to October 4, 2013. ¶ 44. They did so in a First Amendment to
Amended and Restated Contribution and Admission Agreement (the Amendment).
See Dkt. 164. Paragraph 2 of the Amendment provides:
The Scheduled Closing date is hereby extended to October 4, 2013,
time being of the essence. [RXR and WWP] acknowledge and agree that the
extension rights under Sections 7.11(c) and 9.1(b) of the [Contract] have been
exercised and that the parties have no further extension rights thereunder.
See Dkt. 164 at 2 (underline in original; bold added). The
Amendment provides that all of the provisions in the Contract that are not expressly
modified by the Amendment remain "unchanged and in full force and effect." Id.
One such unchanged provision was the Contract's prohibition of oral modifications.
Nonetheless, RXR alleges that on October 1, 2013, WWP orally promised RXR that
WWP would extend the closing date to the end of October 2013 if the master servicer
consented by October 4. ¶ 45. On October 4, the master servicer notified RXR that
it consented to the Contract. ¶ 47. However, the master servicer also informed RXR
that, while the special servicer likely also would consent to the Contract, that process
would take another two weeks. See Dkt. 166 at 2-3. Moreover, even after the
special servicer granted its approval, another two weeks would be needed to procure
ratings agency approval, another condition of closing. See id. at 2.
RXR, as a result, sought another closing extension from WWP. AC ¶ 50.
WWP refused to grant the extension. RXR offered to waive the lender consent
requirement, but WWP refused. ¶ 51. Then, in a letter dated October 4, 2013 (the
Termination Letter), RXR terminated the Contract. See Dkt. 167. RXR
explained:
The Lender Consent, as well as certain other closing conditions, have not
been satisfied or waived by RXR and [WWP] has not adjourned the Scheduled Closing
date Therefore [RXR] hereby terminates the [Contract] and demands a return of
[RXR's $25 million] Deposit From and after the date hereof, the parties shall have no
further obligations or liabilities under the [Contract], other than the Surviving
Obligations.
This letter is without wavier of any of [RXR's] rights and/or remedies set
forth in the [Contract], at law and/or in equity.
See Dkt. 167 at 2-3. WWP refunded RXR's $25 million deposit.It is
undisputed that none of the governing contracts prohibit WWP from selling to ARC or
another investor. Additionally, it is undisputed that none of the governing contracts
contain a non-circumvention clause that would prohibit negotiations regarding a sale to
another investor from taking place while the Contract with RXR was still in effect, so
long as the confidentially obligations in RXR's Contract and ARC's Confidentially
Agreement are not violated.
At some point in October 2013, after RXR issued the Termination Letter, RXR
became aware that WWP agreed to sell the Holdings equity to ARC in an agreement that
is substantially similar to the Contract.[FN2]
RXR commenced this action on October 15, 2013 by filing a Summons [*3]with Notice. On October 27, 2013, RXR filed its original
complaint (Dkt. 5) and moved by order to show cause to enjoin the sale to ARC.
See Dkt. 102. After oral argument on October 30, 2013, RXR's injunction motion
was denied. See Dkt. 154 (Order & 10/30/13 Tr.). In an order dated October
31, 2013, the Appellate Division denied RXR's stay application. See Dkt.
155.RXR filed its AC on November 21, 2013. See Dkt. 142. The AC contains the
following ten causes of action, numbered as in the AC: (1) specific performance and
injunctive relief against WWP and ARC; (2) fraudulent misrepresentation against WWP
regarding its alleged oral extension of the closing dates; (3) fraudulent concealment
against WWP regarding its failure to disclose that it was negotiating with ARC; (4)
breach of the confidentiality provision of the Contract by disclosing the Contract to ARC
and failing to cooperate with RXR to obtain lender consent, and breach of the duty of
good faith and fair dealing against WWP by refusing to extend the closing date, refusing
to accept RXR's waiver of the lender consent condition, and by negotiating with ARC;
(5) breach of the Confidentially Agreement against ARC when it used RXR's due
diligence material to effect its deal with WWP; (6) unjust enrichment against WWP; (7)
tortious interference with contract against ARC; (8) tortious interference with
prospective business relations against ARC; (9) promissory estoppel against WWP for it
alleged broken promise to extend the closing date to the end of October; and (10)
equitable estoppel against WWP for both failing to extend the closing date and not
revealing its negotiations with ARC, thereby "tricking and coercing " RXR to terminate
the Contract. WWP and ARC move to dismiss the AC, and WWP seeks its attorneys' fees
under section 12.3 of the Contract.[FN3]
Legal Standard
On a motion to dismiss, the court must accept as true the facts alleged in the
complaint as well as all reasonable inferences that may be gleaned from those facts. Amaro v Gani Realty Corp., 60
AD3d 491 (1st Dept 2009); Skillgames, LLC v Brody, 1 AD3d 247, 250 (1st Dept
2003), citing McGill v Parker, 179 AD2d 98, 105 (1992); see also Cron v
Harago Fabrics, 91 NY2d 362, 366 (1998). The court is not permitted to assess the
merits of the complaint or any of its factual allegations, but may only determine if,
assuming the truth of the facts alleged, the complaint states the elements of a legally
cognizable cause of action. Skillgames, id., citing Guggenheimer v
Ginzburg, 43 NY2d 268, 275 (1977). Deficiencies in the complaint may be remedied
by affidavits submitted by the plaintiff. Amaro, 60 NY3d at 491. "However,
factual allegations that do not state a viable cause of action, that consist of bare legal
conclusions, or that are inherently incredible or clearly contradicted by documentary
evidence are not entitled to such [*4]consideration."
Skillgames, 1 AD3d at 250, citing Caniglia v Chicago Tribune-New York
News Syndicate, 204 AD2d 233 (1st Dept 1994). Further, where the defendant seeks
to dismiss the complaint based upon documentary evidence, the motion will succeed if
"the documentary evidence utterly refutes plaintiff's factual allegations, conclusively
establishing a defense as a matter of law." Goshen v Mutual Life Ins. Co. of NY,
98 NY2d 314, 326 (2002) (citation omitted); Leon v Martinez, 84 NY2d 83, 88
(1994).Claims Against WWP
Specific Performance
RXR seeks specific performance of the Contract and injunctive relief. A
purchaser of real property must establish that it was ready, willing and able to close when
seeking specific performance. Pesa v Yoma Dev. Grp., Inc., 18 NY3d 527, 531 (2012).
Clearly, that was not the case here, where lenders' consents were required and had not
been obtained. Moreover, specific performance is impossible since the transaction
between WWP and ARC has already occurred.
Fraudulent Misrepresentation and Fraudulent Concealment
"The elements of a cause of action for fraud require a material
misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance,
justifiable reliance by the plaintiff and damages." Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d
553, 559 (2009). "In addition to these elements, a cause of action for fraudulent
concealment requires an allegation that the defendant had a duty to disclose material
information and failed to do so." Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 179
(2011), quoting P.T. Bank Cent. Asia, NY Branch v ABN AMRO Bank N.V.,
301 AD2d 373, 376 (1st Dept 2003). However, fraud is not a viable claim when the
parties' express written agreement is incompatible with the claim. Perrotti v Becker, Glynn, Melamed
& Muffly LLP, 82 AD3d 495, 498 (1st Dept 2011) ("a party claiming
fraudulent inducement cannot be said to have justifiably relied on a representation when
that very representation is negated by the terms of a contract").
RXR claims that WWP's oral promises to extend the closing date and
WWP's oral assurances that it would agree to further extensions constitute fraudulent
misrepresentations. RXR further alleges that WWP's failure to disclose its negotiations
with ARC constitutes fraudulent concealment. These fraud claims are barred by the terms
of the Contract and the Amendment. The Contract specifically prohibits oral
modifications, and the Amendment expressly provides that the parties had no further
extension rights and that time was of the essence with respect to closing. Certainly, RXR,
a sophisticated business entity familiar with the Contract and involved in its drafting,
could not justifiably rely upon the alleged oral promises to extend closing.
In regard to the fraudulent concealment claim, RXR cannot claim that WWP
had a duty to disclose its negotiations with ARC because such negotiations and indeed,
the deal with ARC itself are permitted under the Contract. Moreover, even if WWP told
RXR that it was negotiating with ARC, the documentary evidence conclusively
establishes that the same result would have occurred. RXR was not capable of procuring
the requisite lender and ratings agency consents until the end of October. The knowledge
that WWP had begun negotiating with another investor would not have allowed RXR to
meet its closing obligations by October 4. Ergo, the alleged concealment was not the
cause of the loss. See Mosaic
Caribe, Ltd. v AllSettled Group, Inc., 117 AD3d 421, 422 (1st Dept 2014)
(fraud claim should be dismissed if loss causation is not pled).
Additionally, while RXR implies that its decision to terminate the Contract
might have somehow differed if it knew about the ARC negotiations, without another
extension, RXR surely would have still terminated to ensure that it was entitled to a
refund of its $25 million deposit. While the Termination Letter might have included
threatening language about ARC and some sort of reservation of rights, it is implausible
to assume that RXR's decision to terminate turned on the alleged concealment. In any
event, even if RXR did not terminate, its rights under the Contract would still have been
lost by virtue of missing the closing deadline since the Contract has a time-of-the-essence
clause.Breach of Contract, Good Faith, and Quasi-Contract Claims
WWP did not commit an express breach of the Contract. Giving ARC the
Evaluation Material is not a material breach because ARC had already been given those
materials by RXR. Nor was it a breach for WWP to contract with ARC, since, as
discussed earlier, the Contract does not contain a non-circumvention or exclusivity
clause. RXR, however, also alleges that WWP's failure to agree to further extensions of
the closing deadline and its refusal to waive the lender consent requirements violated
WWP's obligations of good faith and fair dealing.
The covenant of good faith and fair dealing in the course of performance is
implied in every contract. 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98
NY2d 144, 153 (2002). "This covenant embraces a pledge that neither party shall do
anything which will have the effect of destroying or injuring the right of the other party
to receive the fruits of the contract.'" Id., quoting Dalton v Educational
Testing Serv., 87 NY2d 384, 389 (1995). "While the duties of good faith and fair
dealing do not imply obligations inconsistent with other terms of the contractual
relationship,' they do encompass any promises which a reasonable person in the position
of the promisee would be justified in understanding were included.'" Id., quoting
Murphy v Am. Home Prods. Corp., 58 NY2d 293, 304 (1983) and Rowe v
Great Atl. & Pac. Tea Co., 46 NY2d 62, 69 (1978). However, "[a] claim for
breach of the implied covenant of good faith and fair dealing cannot substitute for an
unsustainable breach of contract claim." Skillgames, 1 AD3d at 252. In other
words, "[t]he covenant of good faith and fair dealing cannot be construed so broadly as
to effectively nullify other express terms of the contract, or to create independent
contractual rights." Nat'l Union
Fire Ins. Co. of Pittsburgh, PA v Xerox Corp., 25 AD3d 309, 310 (1st Dept
2006).
WWP's alleged good faith breaches are not actionable. While RXR alleges
that WWP had a duty to continue granting extensions of the closing date, the
Amendment expressly disclaims such an obligation. See Dkt. 164 at 2 ("[RXR
and WWP] acknowledge and agree that the extension rights under [the Contract] have
been exercised and that the parties have no further extension rights thereunder"). Hence,
the allegation that WWP had a good faith obligation to grant yet another extension to
October 30 is incompatible with the express terms of the Amendment.
Similarly, RXR cannot maintain that WWP had a good faith obligation to
waive the lender consent requirement. Though such requirement may have been added to
the Contract at RXR's insistence, nothing in the Contract provides that only RXR may
rely on that provision. To wit, if RXR simply wanted to make the lender consent a matter
of its own discretion, it would have given itself the option to insist on lender consent
instead of granting WWP an equal right to do so.
Next, RXR cannot hold WWP liable for allegedly failing to adhere to its oral
agreement to further extend the closing because the Contract prohibits such an oral
agreement. See In re E. 51st St. [*5]Crane Collapse
Lit., 100 AD3d 503, 503-04 (1st Dept 2012) ("agreement contained a broad merger
clause, and thus, extrinsic evidence, such as the oral agreements alleged by [defendant],
should not be considered to alter, vary or contradict the written agreement"); Ashwood Capital, Inc. v OTG
Mgmt., Inc., 99 AD3d 1, 9 (1st Dept 2012) ("the agreement contains both a
no-oral-modification clause and a broad merger clause, which as a matter of law bars any
claim based on an alleged intent that the parties failed to express in writing"). Again, the
Amendment expressly states that "the parties have no further extension rights" under the
Contract and that time is of the essence with respect to the closing. Likewise, where, as
here, written contracts govern the issue of the parties' obligations to extend the closing
date, RXR cannot maintain a quasi contract claim. IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d
132, 142 (2009).
Equally unavailing is RXR's argument based on Rose v Spa Realty
Assocs., 42 NY2d 338 (1977). In Rose, the Court of Appeals held that:
written agreement[s] [that] include a proscription against oral modification
cannot be changed by an executory agreement unless such executory agreement is in
writing and signed by the party against whom enforcement is sought. Put otherwise, if
the only proof of an alleged agreement to deviate from a written contract is the oral
exchanges between the parties, the writing controls. Thus, the authenticity of any
amendment is ensured.
Id. at 343 (citations and quotation marks omitted). "A party can
overcome such a clause and enforce an oral modification to a written agreement by
demonstrating either that the oral modification has in fact been acted upon to
completion'; or, where there is only partial performance, that the partial performance [is]
unequivocally referable' to the alleged oral modification." Eujoy Realty Corp. v Van Wagner
Communications, LLC, 22 NY3d 413, 425 (2013), quoting Rose, 42
NY2d at 343; see also Nassau
Beekman, LLC v Ann/Nassau Realty, LLC, 105 AD3d 33, 39-41 (1st Dept
2013) (rejecting similar Rose argument in support of allegation that parties orally
agreed to extend closing date)
Here, RXR's alleged partial performance the procurement of the master
servicer's consent is not unequivocally referable to the alleged oral agreement. The
procurement of such consent was an express obligation under the Contract. That RXR
procured the master servicer's consent in early October 2013 did not place RXR in a
detrimental position warranting estoppel, nor is such procurement solely attributable to a
new oral agreement since it equally evidences RXR's obligations under the Contract.
See Eujoy, 22 NY3d at 426, citing Rose, 42 NY2d at 344 ("unequivocally
referable" means that "conduct relied upon to establish estoppel must not otherwise
be compatible with the agreement as written" [emphasis added]).
Simply put, the Amendment, which was entered into mere days before the
alleged oral agreement to extend the closing, expressly states that "the parties have no
further extension rights" under the Contract and that time is of the essence. Hence, the
oral agreement alleged by RXR is incompatible with the parties' understanding about the
urgency of closing. Indeed, WWP's desire to promptly close is actually bolstered by the
speed with which it contracted with and proceeded to closing with ARC. And, though the
value of the property may have gone up, this is neither remarkable nor legally relevant
since real estate prices often fluctuate.[FN4]
RXR's [*6]alleged oral agreement, therefore, contravenes
the parties' intentions expressed in writing while WWP's decision to contract with ARC
is consistent with those intentions.
Claims Against ARC
Breach of the Confidentially Agreement
RXR claims ARC breached the Confidentially Agreement. RXR's theory is
that, since ARC allegedly relied on the Evaluation Materials, ARC is liable to RXR
for contracting with WWP. This is simply wrong. To be sure, assuming, as the
court must on this motion to dismiss, that ARC violated the Confidentially Agreement, it
does not follow that RXR has the ability to re-interject itself into the transaction with
WWP, especially since RXR was the one who terminated the Contract. The
Confidentially Agreement specifically states that "neither of us will have any rights or
obligations of any kind whatsoever with respect to the Transaction by virtue of this
agreement." Consequently, ARC's breach of the Confidentially Agreement cannot lead to
damages flowing from ARC's deal with WWP because the Confidentially Agreement
expressly disclaims such a right (though ARC's breach may entitle RXR to recoup the
cost of preparing the Evaluation Material).Nonetheless, even assuming that ARC used
the Evaluation Materials in its deal with WWP (which ARC denies), ARC still maintains
that doing so is not a breach of the Confidentially Agreement. ARC avers that its
confidentially obligations are limited, as the Confidentially Agreement provides, to be
used "solely for the purpose of determining the desirability of the Transaction." ARC
argues that since the word "Transaction" is defined as "a possible transaction involving
[the Property]," such definition includes a deal without RXR.RXR counters that while
ARC's reading of the Confidentially Agreement is literally accurate, such reading makes
no commercial sense. RXR explains that the parties entered into the Confidentially
Agreement in contemplation of a joint venture in which they would each participate in
the investment set forth in the Contract. RXR had spent considerable money preparing
due diligence materials, and, thus, it was agreed that it would be far more efficient for
ARC to avail itself of RXR's due diligence than for ARC to duplicate RXR's efforts.
Understandably, RXR was wary that, if RXR and ARC did not ultimately co-invest, its
due diligence might be used by another investor. It had no intention of gifting this costly
investment of time and money.
To resolve this dispute, the court must interpret the Confidentially
Agreement "in accord with the parties' intent." Greenfield v Philles Records, Inc.,
98 NY2d 562, 569 (2002). It is well settled that "[t]he best evidence of what parties to a
written agreement intend is what they say in their writing. Therefore, a written agreement
that is complete, clear and unambiguous on its face must be enforced according to the
plain meaning of its terms." Id. (citations omitted). "A contract is unambiguous if
the language it uses has a definite and precise meaning, unattended by danger of
misconception in the purport of the [agreement] itself, and concerning which there is no
reasonable basis for a difference of opinion." Id., quoting Breed v Ins. Co. of
N. Am., 46 NY2d 351, 355 (1978). Additionally, it is well settled "that a contract
should not be interpreted [*7]to produce an absurd result,
one that is commercially unreasonable, or one that is contrary to the intent of the parties."
Cole v Macklowe, 99 AD3d
595, 596 (1st Dept 2012), citing In re Lipper Holdings, LLC, 1 AD3d 170,
171 (1st Dept 2003).
While RXR's interpretation of the Confidentially Agreement is commercially
reasonable, its interpretation is not unambiguously clear from the contract itself. Had
RXR wished to restrict ARC's use of the Evaluation Material to the contemplated
co-investment deal, as opposed to a separate deal only involving WWP and ARC, RXR
could have insisted that the contract expressly provide for such a restriction. Indeed, the
possibility that ARC might want to do the deal on its own was not unforeseeable, since
RXR's Contract with WWP had no exclusivity or non-circumvention provision, allowing
either side to back out. In any event, the ambiguity over the meaning of the word
"Transaction" precludes the court from ruling on the scope of the Confidentially
Agreement on this motion to dismiss.
That being said, once ARC was provided with the Evaluation Material, it was in a
position to do the deal on its own since its diligence was mostly complete. The
Evaluation Material was reviewed and assessed by ARC, and any deal involving ARC
and WWP would inherently involve ARC relying on the Evaluation Material. By not
contractually prohibiting WWP and ARC from executing a deal on their own, RXR
cannot sue ARC for carrying out the deal even if it relied on RXR's due diligence. RXR,
in effect, is arguing that the Confidentially Agreement functioned as a de facto
non-circumvention agreement. However, it clearly was not because, again, it states that
"neither of us will have any rights or obligations of any kind whatsoever with respect to
the Transaction by virtue of this agreement."
Aside from the due diligence materials provided to ARC, RXR also protests ARC's
use of the Contract as the template for its contract with WWP. While RXR has no
copyright or trade secret rights over the deal structure and cannot prohibit WWP and
ARC from entering into a deal that mirrors the parameters set forth in the Contract, RXR
maintains that actually using the Contract itself, without making meaningful changes and
simply substituting ARC as the purchaser instead of RXR, is a violation of the
Confidentially Agreement. ARC disagrees.Assuming, for the purposes of this motion,
that ARC breached the Confidentially Agreement by both improperly using the due
diligence materials and improperly using the form of the Contract, at most, RXR's
damages are limited to its cost of producing such materials. The gravamen of RXR's case
its alleged entitlement to participate in WWP's sale to ARC or disgorgement of profits
from that sale is not legally viable.Moreover, aside from these issues, there are serious
causation problems with RXR's attempt to recover damages arising from its loss of the
deal with WWP (as opposed to its due diligence costs). RXR voluntary terminated the
Contract and expressly did so (as it admits in the Termination Letter) because it had not
satisfied the conditions of closing. At that point, WWP was free to contract with anyone,
including ARC. RXR, therefore, cannot claim that ARC was the legal cause of its loss of
the transaction, and, as a result, ARC cannot be held liable for RXR's loss of the
transaction. Though ARC's use of the Evaluation Material may have contributed to its
ability to quickly transact with WWP and indeed may be the reason that WWP
transacted with ARC ARC's use of the Evaluation Material is not the reason RXR
did not transact with WWP.[FN5]
The reason RXR did not transact with WWP was RXR's failure to [*8]satisfy the conditions of closing, a failure that RXR was
granted multiple extensions to remedy. When RXR failed to do so, WWP carried out the
deal with another investor. Again, WWP did not breach the contract by doing so since it
was not obligated to grant RXR further extensions beyond October 4, 2013.
Tortious Interference Claims
Finally, the remaining tortious interference claims against ARC are similarly
deficient. The tortious interference with contract claim fails because the Contract was not
breached. See Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 424 (1996).
The tortious interference with prospective business relations claim fails because ARC did
not commit "a crime or independent tort" nor, as explained above, was ARC the reason
that RXR did not close with WWP. See Amaranth LLC v J.P. Morgan Chase & Co., 71 AD3d
40, 47 (1st Dept 2009).That being said, RXR's breach of contract claim against ARC
survives because the Confidentially Agreement is ambiguous and may well have been
violated. RXR may proceed to discovery on this claim, for which it might recover its cost
of preparing the Evaluation Material and, perhaps, its legal fees for the Contract.
Accordingly, it isORDERED that the motion to dismiss by defendants WWP Sponsor,
LLC and WWP Holdings, LLC is granted, and the Clerk is directed to enter judgment
dismissing the Amended Complaint with prejudice against said defendants; and it is
further
ORDERED that the calculation of WWP Sponsor, LLC's reasonable
attorneys' fees, pursuant to section 12.3 of the Contract, is respectfully referred to a
Special Referee to hear and report; and it is furtherORDERED that a copy of this order
with notice of entry shall be served on the Clerk of the Reference Part (Room 119) to
arrange a date for the reference to a Special Referee and the Clerk shall notify all parties
of the date of the hearing before the Special Referee; and it is furtherORDERED that the
motion to dismiss by American Realty Capital Properties, Inc. and American Realty
Capital New York Recovery REIT, Inc. is granted on all claims except for the claim for
breach the Confidentially Agreement, which is severed and shall continue in accordance
with the damages limitations set forth in this decision; and it is furtherORDERED that
RXR and ARC are to appear in Part 54, Supreme Court, New York County, 60 Centre
Street, Room 228, New York, NY, for a status conference on August 28, 2014 at 10:30
in the forenoon.
Dated: August 12, 2014ENTER:
__________________________
J.S.C.
Footnotes
Footnote 1: The master and special
servicers are different departments at Wells Fargo. ¶ 46.
Footnote 2: The court will not
discuss the complex, nuanced differences between the RXR and ARC deals, nor will the
court opine on whether such differences render the ARC deal a qualitatively different
transaction. This does not matter. As explained below, RXR was not legally wronged
either under the contracts or the common law by the sale to ARC. That being said, and
also as explained below, RXR has stated a claim against ARC for breach of the
Confidentially Agreement, but RXR cannot use such breach to collaterally attack the sale
itself. Nor can RXR use such claim as leverage to extract some or all of the profit on the
sale based on the increased valuation of the property.
Footnote 3: Section 12.3 is a
prevailing party clause. RXR does not dispute that it applies to this action because this is
"a legal proceeding in connection with [the Contract]," and section 12.3 provides that it
survives the closing or the termination of the Contract. See Dkt. 147 at 46.
Footnote 4: Based on ARC's ability
to quickly close, a reasonable inference can be drawn that WWP likely would have
contracted with ARC instead of RXR even if the price did not change. Additionally, once
the value of the property did increase, it was entirely rational for WWP to want to
procure a higher price. If RXR was concerned that the price would go up and WWP,
therefore, might not want to close, RXR should have bargained for an exclusivity or a
non-circumvention provision.
Footnote 5: RXR's theory is that
WWP backed out of the deal with RXR because the market went up.Under this theory, it
was WWP's own desire to breach that cased the RXR deal not to close. The record
indicates that the reason ARC was able to close so quickly was not just because it had
access to RXR's due diligence, but rather, unlike RXR, ARC actually had the means to
invest.